For two years I have been hearing the same statement from those in the industry who are excited about Point-of-Sale Check Conversion. The statement is that Check Conversion is just like bankcard was in the early ë80s.
Some of those who are repeating this mantra believe that Check Conversion is turning paper checks into the equivalent of draft capture settlement in the old bankcard world. Of course, checks have virtually nothing in common with bankcard in that there is NO issuer or ruling body in checks, as in bankcard. Authorization is NOT against an issuer's approved file in which an open to buy is known, nor is the issuer bearing risk under some floor level, since with checks no one knows if money is present at the time of authorization, or if it will still be there at the time of clearance.
I could go on and on, but then that is what I have been doing in article after article about this subject over the last couple of years. While I have 101 reasons (hyperboleóhonestly, the list is very long), why check conversion is NOT just like bankcard in the early ë80s, I have finally found one reason why it may be.
One of the things that we all remember about the early ë80s conversion of bankcard merchants from paper to Draft Capture is that some sales organizations told merchants that they would get their sales drafts deposited in their bank account the following day, when at the time, it took several days to a week to actually get funded. We might consider these past sales statements as stretching the truth to get the sale, but the stretches that are beginning to show up in check conversion are nothing short of a con game and circus hucksterism, and can do nothing but give the concept of Check Conversion a black eye.
Check Plus Systems, Inc., operating from Clayton, Alabama and Port St. Lucie, Florida, has the most blatant example of what I am talking about. In the sales materials that Check Plus is using and giving to merchants, Check Plus states the following in the first paragraph of its "Dear Future Merchants" letter:
"First, the customer's driver license is searched to see if the individual presenting the check has any outstanding bad checks anywhere in the U.S. Second, the customer's account number is searched to see if the account has any outstanding bad checks."
Although there are a number of companies that have outstanding checks on their system, there is no universal way to check them all.
The letter continues,
"Third and most significantly, the system checks the account to assure that the customer has the funds available to cover the face amount of the check being presented."
No one in the country can make a real-time check of bank account balances or make such an assurance. If this were true, then Check Guarantee would not be in such high demand for Check Conversion.
While Check Plus's materials attempt to convince a merchant that their system has more knowledge and capabilities than the Check Verification and Guarantee authorizations systems already in place, the truth is that Check Conversion is using the very same systems and in the very same way. Furthermore, these systems present the very same risks to the merchant.
The differences between converting checks to the ACH system and depositing them at the bank are really very minor. In both cases, the use of funds will likely be the same, provided the merchant goes to the bank each day. The cost per item deposited may even be greater with ACH, since the merchant probably has too few checks to be exceeding a minimum account charge, which will not be reduced should ACH deposits take the place of physical deposits. If this is not true, the merchant account may well be on analysis.
The cost difference between returned ACH and returned checks is favorable to ACH. However, most often, these fees are reimbursed by a Guarantee company as part of the fee, and Guarantee is still needed unless the merchant wants to eat the cost of account closed and insufficient funds checks.
Of course, there will be some problems with the conversion of credit union and savings and loan checks which are paid through commercial banks. Additionally, large value checks and all business checks can not be converted at the point-of-sale, leaving some merchants to run two check systems.
While Check Conversion will clearly find favor among certain merchants, such as those with multiple locations who are seeking cash consolidation opportunities, or those who have no commercial trade, or only low value checks, it will also find favor with those who think it is something it is not.
As this product warms up, the problems are likely to grow, and only time will tell if the sales leaders sell the lie or sell the truth. The truth will sell, but the lie will always sell more...for a while.
Copyright © The Green Sheet, Inc., 1999. All rights reserved.
First Published November 1, 1999
